What's differencePerpetual vs Periodic?
The main difference between perpetual and periodic inventory systems lies in how inventory is tracked and updated in the accounting records.
Perpetual Inventory System:
- In a perpetual inventory system, inventory levels are continuously updated every time a purchase or sale is made.
- Each time a product is bought or sold, the inventory account is immediately adjusted to reflect the change.
- This system provides real-time information on inventory levels and helps in better tracking of inventory costs and sales.
Periodic Inventory System:
- In a periodic inventory system, inventory levels are not continuously updated. Instead, a physical count of inventory is done at the end of a specific period, such as monthly or annually.
- The cost of goods sold and ending inventory are calculated at the end of the period based on the physical count and purchases made during the period.
- This system is simpler and less costly to maintain compared to a perpetual system, but it may not provide real-time information on inventory levels.
In summary, the key difference is that perpetual inventory systems update inventory levels continuously, while periodic inventory systems update inventory levels periodically through physical counts.
Perpetual Inventory Method
The perpetual inventory method is a system used by businesses to keep track of their inventory levels in real-time. With this method, every time a product is bought or sold, the inventory records are immediately updated to reflect the change. This allows businesses to have an accurate and up-to-date view of their inventory levels at any given time. The perpetual inventory method is often used in conjunction with inventory management software to streamline the process and ensure accuracy.
Periodic Inventory Method
The periodic inventory method is an accounting system in which a company only updates its inventory records periodically, rather than continuously. Under this method, the cost of goods sold and ending inventory are calculated at the end of a specific period, such as monthly or annually. This is in contrast to the perpetual inventory method, where inventory levels are continuously updated with each sale and purchase transaction.
When using the periodic inventory method, the cost of goods sold is determined by taking the beginning inventory, adding purchases, and then subtracting the ending inventory. This calculation helps businesses track the cost of goods sold and the value of remaining inventory at the end of the period.